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A study on the relationship between corruption and government size: the role of democracy

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  • Kotera, Go
  • Okada, Keisuke
  • Samreth, Sovannroeun

Abstract

Previous studies on the effect of government size on corruption have produced mixed results. For the purpose of explaining these ambiguous results, our study investigates the effect of government size on corruption by taking into account the role of democracy level in each country. Using annual data from 82 countries from 1995 to 2008, the estimation results indicate that an increase in government size can lead to a decrease in corruption if democracy level is sufficiently high and, in contrast, can lead to an increase in corruption if it is too low. As a robustness check, estimations using a different index of corruption and a different proxy for government size are also conducted. The results show that our main results are robust. Furthermore, to deal with endogeneity problems, we conduct an instrumental variable estimation, the results of which support our main results. These findings provide some important implications for policymakers seeking to conduct government intervention without aggravating corruption.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25015.

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Date of creation: 15 Sep 2010
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Handle: RePEc:pra:mprapa:25015

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Keywords: Corruption; Government Size; Democracy; Instrumental Variable Estimation;

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References

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Cited by:
  1. Kumara, Ajantha Sisira & Handapangoda, Wasana Sampath, 2014. "Political environment a ground for public sector corruption? Evidence from a cross-country analysis," MPRA Paper 54721, University Library of Munich, Germany, revised 22 Mar 2014.

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